Through the fisheye lens of a covert bug, the jury in the Stephen Lawrence murder trial on Tuesday got a view into the private behaviour of the two defendants and their friends in 1994.

The video showed a group of young white men, peppering conversations with racist words and discussing the threat of violence against black people and the torture and killing of black people. The handling of knives did not seem to draw comment from those present.

The video was recorded in a flat in Eltham, south London, rented by Gary Dobson, who is now accused of the murder, and his friend Charlie Martin, in August 1994. It shows conversations with friends who visited, including Dobson's co-accused, David Norris, and others, including Neil Acourt, who are not on trial. The bug had been planted by police, and it shows the flat's living room and kitchen. The video is shot from a low angle and is in black and white, with a transcript needed by the jury to help them understand the audio.

Lawrence was killed by a racist gang who first shouted racist abuse – "what what nigger" – before stabbing him twice, in April 1993. The crown alleges that Dobson, now 36, and Norris, 35, were there and part of the attacking gang. They deny the charges.

The jury at the Old Bailey was told by Mr Justice Treacy that the crown would say the video extracts showed racist behaviour. He warned the jury that they might consider the material "shocking", but they must set emotion aside and decide the case on the facts. In an extract played to the jury recorded on 14 December 1994, just after 11pm, Norris says: "If I was going to kill myself do you know what I would do? I would go and kill every black cunt, every Paki, every copper, every mug that I know, I'm telling you.

"I am not talking about people I love and care for, I am talking about people I don't like. I'm telling you then I'd go home and go boom straight in my head, that's if I was going to do it but that is madness …"

Two minutes later, Norris, who is sitting down, continues: "I would, I would go down Catford and places like that, I am telling you now, with two sub-machine guns and I am telling you I would take one of them, skin the black cunt alive, mate, torture him, set him alight … I would blow their two arms and legs off and say, 'Go on you can swim home now.' They would be bobbing around like that."

Treacy told the jury: "What the evidence cannot do, and what it must not be used to do, is to identify who was involved in the attack. If it did that, others would be in the dock, as well as the defendants."

According to the transcript of the video produced in court, Norris was filmed talking about a fight which involved a black man. Norris said: "I started going on and called him a black cunt and all that, saying he was a fucking coon. He was going, 'leave it out mate', so I went smack, punched the nigger like that …"

At times, music can be heard on the video, including the song Apparently Nothin' by the Brand New Heavies. One of the youths can be seen rolling a joint, and some of the comments made were in reaction to television programmes being watched.

Sometimes the camera would be partially obscured by a vacuum cleaner, basket or stool.

The video also recorded the handling of knives. On 7 December 1994, at 9.36pm, Acourt is in the flat with Norris and another youth. The transcript said: "Acourt picks up a large knife from the windowsill and secretes it about his person." Two minutes later, Acourt and Norris leave the flat with the weapon, returning 20 minutes later when "Acourt returns the knife to the windowsill".

On 11 December, with the transcript showing Dobson in the flat, Acourt is holding a knife, which 20 minutes earlier Dobson had been carrying. Acourt, according to the transcript "bangs it on chair", and a minute later Dobson is present as another youth uses the term "Paki".

Later, while giving evidence in court, Dobson said he did not see Acourt banging the knife on the chair. Prosecutor Mark Ellison QC said: "Mr Dobson, he was not trying to dice carrots on the chair, was he?" Dobson agreed.

On 2 December 1994, Dobson is recorded discussing an African-Caribbean man whom he works with, and talks of threatening him with a Stanley knife. He tells Acourt: "He's a black cunt, but he ain't like a nigger, a rude boy or nothing."

Dobson is recorded saying he took the baseball cap belonging to the man – who is called Mick – at the place where he worked as a labourer. Dobson says the man twisted his arm, and then tapped him on the legs: "I had the Stanley knife in my pocket, pulled it out and picked the thing off. 'That will do there Mick before I end up fucking cutting you' – I was half mucking about, I said you tap me once more, you silly cunt, I'm going to slice this down you seven times."

On 11 December, at 7.40pm, Dobson is filmed "walking about with the large knife", according to a transcript. He is bare-chested, and carries the knife horizontally at waist level.

When questioned by the crown, Dobson said he may have been carrying the knife because he was cooking.

Stephen Lawrence's parents, Doreen and Neville, were in court to watch the video extracts, and at time made notes.

During a 1993 police interview, Dobson had denied knowing his co-accused Norris, but today during questioning admitted that was a lie which had been "stupid".

During a police interview in 1995, he denied being a racist.

"I have got nothing against black skin itself," he told detectives, adding that his friends "have the same point of view as me".

Asked what his friends talk about, he makes no mention of the language on the recordings. Then detectives played him the video. Dobson then said: "I have no comment I wish to make about the video. I wish to consult further with my solicitor."

He also denied being involved in knife violence: "Stabbing innocent people is not something that we get off on it's not something that we enjoy doing … We ain't animals," he said in the recorded interview with police.

In a police interview in 2010, after again being arrested for the murder, Dobson exercised his right to silence.